The company is in a super growth phase with rapid projects undertaking. This involves taking on multiple projects and overshooting cash capacity. As such, for this super growth momentum, the company needs to compromise on Free Cash Flows. This compromise is not hampering their solvency and liquidity but is strengthening it’s operations. As soon as the company is out of its super growth phase, the FCF will be seen in a rising trend.
I am a value investor and prefer to invest in companies in their super growth phase more than in their sustainable/stable growth phase. Hence, I am ready to invest in the company. One needs to invest in construction industry as infrastructure push is live and now.
P. S. FCF pattern in construction business is different than other business and comparison with other Industries like that of Asian Paints cannot be treated as an Apple to Apple comparison. Construction is a business of delayed cashflows plus taking multiple projects and overshooting cashflows. If we check the growth stories of other construction companies, we can find resemblance in these patterns.
One key risk in PSP projects which dampens my conviction is its dependency on Government projects.
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